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Financial Statements Preparation of AlRass Corporation

Learning Objectives are:

  1. Demonstrate ability to critically analyze accounting issues and to apply accountingknowledge to solve problems, and
  2. Theability to work effectively within a 

Project Title: Financial Statements’ Preparation of AlRass Corporation

Background:

At the end of 2020, AlRass Corporation’s computerized information systems experienced a serious malfunction. The information technology specialists along with the company’s accounting team were able to recover the following information:

The following account balances as of January 1, 2020:

(in Thousands of Dollars)

Debits

Credits  

Cash

Supplies

38,500

1,200

 

Inventory

38,000

 

Prepaid rent

22,000

 

Machine

7,000

 

Accumulated depreciation

 

200

Salaries payable

 

5,500

Unearned rent revenue

 

10,750

Notes payable

 

0

Retained earnings

 

1,750

The income statement for the year ending of December 31 2020 (amounts in thousands)

AlRass Corporation

Income Statement

  For the Year Ended December 31 2020

Sales revenue

$54,250

Cost of goods sold

31,000  

Gross profit

23,250

Operating expenses:

Salaries

14,000

Supplies

2,000

Rent

3,000

Depreciation

1,200

Bad debt

1,950  

Total operating expenses

$22,150  

Operating income

1,100

Other income:

 

Rent revenue

17,250  

Net income

$18,350  

The team found the following statement of financial position. However, due to the malfunction, the statement has missing information and classification inaccuracies (amounts in thousands). The only additional piece of information that found was a receipt showing that the machines were purchased with cash.

AlRass Corporation

Statement of Financial Position

At December 31, 2020

Assets

Current assets:

Inventory

29,000

Supplies

950

Cash

$42,650

Accounts receivable

$12,850

Less: Reserve for accounts receivable

  2,450  

10,400

Goodwill

 

2,000

Prepaid rent

 

19,000  

Total current assets

 

104,000

Property and equipment:

 

Land held for sale

 

3,000

Machines

12,900

Less: Depreciation reserve

1400    

11,500  

Total assets

$118,500  

Shareholders Equity and Liabilities

Shareholders’ equity:

Share capital

50,000

Unearned rent revenue

400

Retained earnings

18,100  

Total shareholders’ equity

$68,100

Current liabilities:

Accounts payable

20,000

Salaries payable

13,000

Foreign currency translation reserve

10,000

Note payable (Due in 2023)

  7,000  

Total current liabilities

50,400  

Total shareholders’ equity and liabilities

$118,500  

Required:

  1. Identifythe mistakes and classification inaccuracies in the above statement of financial position, and prepare the correct one.
  2. Do you agree or disagree with the following statement: “the matching principle meansthat revenues equal expenses.” How could violating the matching principle impact analysis of performance for the company?
  3. Preparethe full statement of cash flows for the period ending December 31,  Using indirect method.
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